Brexit is not a topic even remotely as hot in Serbia as it is in the European Union. This is not surprising given that Serbia is not a Member State. The impact of Brexit on the UK-Serbia relations in the financial sector will be modest because the EU passporting system for banks and financial services companies does not apply in Serbia. However, EU-based financial institutions do enjoy certain preferential treatment in Serbia that the UK entities will not be able to enjoy post-Brexit in the absence of legislative intervention by the Serbian authorities. There have been so far no official initiatives in that respect.
Below is a non-exhaustive list of issues that UK entities will face in Serbia in the sphere of cross-border financing as a direct result of the British divorce from the EU.
The Serbian Foreign Exchange Act imposes a number of restrictions on both inbound and outbound cross-border lending transactions. Those restrictions have been recently relaxed for the benefit of EU-based lenders only.
Inbound cross-border lending
Serbian branch of a foreign entity can take a short-term loan from its parent only if the parent has its registered seat in the EU. Serbian individual can take short-term loans from abroad only if the lender is from the EU.
Cross-border loans to Serbian borrowers are subject to mandatory grace periods unless lender is registered in the EU.
Outbound cross-border lending and upstream guarantees
Serbian entities may grant cross-border loans only to borrowers based in the EU (except if the borrower is a subsidiary of the Serbian lender, in which case the borrower can be located in any country). Furthermore, Serbian entities may guarantee for third-party debt originating from cross-border loan only if the lender is based in Serbia and the borrower is based in the EU or if both the lender and the borrower are based in the EU.
Cross-border investment into debt securities
Serbian corporates and individuals may invest into debt securities of foreign issuers belonging to any of the following categories: EU, a Member State, OECD, international financial institution or development bank, financial institution established by a foreign sovereign, or legal entity having its seat in a Member State. Investment into debt securities of other issuers must be specifically white-listed by the National Bank of Serbia. Consequently, unless the restriction is relaxed, Serbian companies will not be permitted to purchase UK bonds. The foregoing restriction applies to Serbian banks only with respect to short-term debt securities.
Absent a change in law following Brexit, UK entities will not be able to purchase Serbian money market.